Gentleman Gym just paid its annual dividend of $3 per share, and it is widely expected that the dividend will increase by 5% per year indefinitely. A. What price should the stock sell at? The discount rate is 15%.
B. How would your answer change if the discount rate was only 12%? Why does the answer change?

a. $31.5 ; b. $45.

Explanation:

A. What price should the stock sell at? The discount rate is 15%.

The dividend for the first year will be:

= $3 × (100% + 5%)

= $3 × 105%

= $3 × 1.05

= $3.15

Since Price = D1/Ke - g

Price = 3.15/0.15 - 0.05

Price = 3.15/0.10

Price = $31.5

B. How would your answer change if the discount rate was only 12%?

Price = D1/Ke - g

Price = 3.15/(0.12 - 0.05)

= 3.15/0.07

= $45

The answer changed because the discount rate has been reduced which led to the increase in the answer.

answer; /// i believe the correct answer is first in, first out(fifo); //

the correct answer is economics is a game without winners or losers.

unlike sports or games economic is a game without losers or winner rather it is a game where everyone wins. parties of business doing businesses exchange money with each other and hence exchange is done on the basis of goods. one party takes the goods and other sales it so there is winner on both sides. each party values more highly the good it gets than the good it gives up. both sides exchange only because both intend to increase their value. so there is no concept of lose or win.